Regional chief executives buck salary freeze trend

ALMOST half of chief executives at the UK’s largest firms have agreed to freeze their salaries this year after almost a decade of unprecedented increases.

However, business chiefs from Yorkshire are resisting the move, according to a survey produced by law firm Addleshaw Goddard into executive pay and remuneration.

Across the UK, 47% of chief executives in the FTSE 350 froze their salaries for 2009 / 10.

In Yorkshire, where there are 13 companies in the FTSE 350, almost a third (31%) have agreed to have their salaries frozen.

In the FTSE 100, the chief executives of Drax and Morrisons did not have their pay frozen, compared to 43.5% across the whole country who did.

Across the UK, almost half (49.2%) of chief executives in the FTSE 250 have taken a pay freeze for 2009 / 10.

At Yorkshire companies in the FTSE 250, chief executives’ average salaries in Yorkshire are £461,000, compared to the total average of £448,500.

Employee incentives specialists at Addleshaw Goddard are predicting a major overhaul of the UK executive pay model in response to shareholder pressure during the recent economic downturn which they believe will see future reward and remuneration more closely linked with stretching performance targets.

Michael Carter, head of the employee incentives group at Addleshaw Goddard, which has an office in Leeds, said: “Investors have been keen to see the brakes being put on senior level remuneration over the last 12 months.

“A number of companies have looked to change their performance targets for both annual bonuses and long-term incentives to take into account the unsettled economic conditions, and shareholders will continue to focus on these to ensure that the pay-outs are commensurate with value delivered.

“With increasing public scrutiny and reputational risk, the pressure on remuneration committees to manage their reward programmes has become more intense over the last 12 months with the spotlight turning on the composition and operation of the committee.

“This is partly as a consequence of the pressure institutional shareholders are under from both their clients and politically to be seen to be taking an active role challenging boards around their remuneration policies.” 

He added: “Whilst the jury is out on whether the UK executive pay model has consistently succeeded in both motivating executives and aligning their reward with shareholder outcomes, it is inevitable that change will now happen sooner rather than later, whether voluntary or by regulation, to governance and the design of executive pay.”

And commenting on the impact for remuneration committees of the increase in the higher rate of income tax to 50 per cent from April 2010, Mr Carter said: “The decrease in the value of remuneration packages will inevitably put increased pressure on remuneration committees with executives looking to minimise their losses and shareholders anxious to ensure that the company is not compensating executives for their increased tax burden.”